TY - JOUR
AU - Bordo,Michael D.
AU - Vegh,Carlos A.
TI - What If Alexander Hamilton Had Been Argentinean? A Comparison of the Early Monetary Experiences of Argentina and the United States
JF - National Bureau of Economic Research Working Paper Series
VL - No. 6862
PY - 1998
Y2 - December 1998
DO - 10.3386/w6862
UR - http://www.nber.org/papers/w6862
L1 - http://www.nber.org/papers/w6862.pdf
N1 - Author contact info:
Michael D. Bordo
Department of Economics
Rutgers University
New Jersey Hall
75 Hamilton Street
New Brunswick, NJ 08901
Tel: 732/822-7152
Fax: 732/932-7416
E-Mail: bordo@econ.rutgers.edu
Carlos A. Vegh
School of Advanced International Studies (SAIS)
Johns Hopkins University
1717 Massachusetts Avenue, NW
Washington, DC 20036
Tel: 202-663-7787
E-Mail: cvegh1@jhu.edu
AB - The contrast between the early nineteenth century Argentinean experience of high inflation and the American experience of low inflation is interpreted in terms of a dynamic monetary model of optimal taxation. It is argued that the two countries' experiences diverged because of the different constraints they faced in financing wartime government expenditures. In the presence of frequent wars, ever-tightening access to foreign capital, and an inadequate tax base, Argentina's use of the inflation tax may be viewed as an optimal solution to its wartime problems. By contrast, with the exception of the Revolutionary War, the absence of such constraints in the United States required full-tax smoothing, with only a temporary use of the inflation tax during wartime. Such policies were embodied in Alexander Hamilton's fiscal package of 1790, which allowed the United States to bond-finance most subsequent wartime expenditures.
ER -